Highlights of Three-Year Action Agenda

Rachit Saxena

Apr 9, 2018 17:48 IST

Niti Aayog Reports

The IAS Prelims Exam will be conducted on 3 June 2018 and not very much time is left to study and prepare for the IAS Prelims Exam. The nature of IAS Exam is changed in more than one way in the recent years. Now the IAS Prelims Exam is more analytical in orientation, which requires a subjective approach in the studies. Reading and understanding the reports to form a crux of important reports became the success mantra for the IAS Prelims. A very huge amount of time is required to read, understand and make notes of important reports published by government agencies but this integrated approach to the IAS provides an edge in the overall IAS preparation.

The Prime Minister’s Office advised the NITI Aayog to prepare Fifteen Year Vision, Seven Year Strategy and Three Year Action Agenda documents for the growth and development of India. Accordingly, the present document is being published to recommend policy changes and programmes for action from 2017-18 to 2019-20, the last three years of the Fourteenth Finance Commission. A second document containing the Fifteen Year Vision and Seven Year Strategy is currently under preparation at the NITI Aayog. The Vision, Strategy and Action Agenda exercise represents a departure from the Five Year Plan process, followed with a handful of discontinuities until the fiscal year 2016-17. The 12th Five Year Plan was the last of these plans. It has been felt that with an increasingly open and liberalized economy, we needed to rethink the tools and approaches to conceptualizing the development process. The proposed shift represents an important step in this direction.

The agenda chart out the past economical conditions of India and the related growth statistics but the real emphasis is on the future path to be taken by the nation. It devised the Medium term and Long term strategy to achieve the aspiration goal of India to became a developed country in the shortest possible time.

The reforms that followed first under Prime Minister Narasimha Rao and then under Prime Minister Atal Bihari Vajpayee placed India first on a 6% growth trajectory and then, beginning in 2003-04, on an 8% plus trajectory. Growth also yielded handsome gains in tax revenues, which helped expand social spending manifold, reinforcing the direct effect of growth on poverty reduction.

Part I: Medium-Term Revenue and Expenditure Framework

During the past three years (2014-15 to 2016-17), the government has made significant progress towards implementing a sound and stable fiscal strategy. The fiscal deficit has been cut from 4.5% of the Gross Domestic Product (GDP) in 2013-14 to 3.5% in 2016-17 while the revenue deficit has been reduced from 3.2% to 2.1% of the GDP over the same period.

Under the proposed fiscal framework, the fiscal deficit is to be reduced to its eventual target of 3% of the GDP under the Fiscal Responsibility and Budget Management (FRBM) framework by 2018-19, while the revenue deficit is expected to fall to 0.9% of the GDP by 2019-20.The Action Agenda proposes linking Central government expenditures to future priorities. It suggests shifting the composition of expenditures by allocating a larger proportion of additional revenues that become available over time to high-priority sectors.

Under the proposed agenda, the share of non-developmental revenue expenditure in total expenditure would decline from 47% in 2015-16 to 41% in 2019-20.

At the same time, the share of capital expenditure, which is more likely to promote development, would rise significantly. The proposals imply substantial expansion in expenditures by 2019-20 on education, health, agriculture, rural development, defence, railways, roads and other categories of capital expenditure.

Farmers make up nearly half of India’s workforce. Therefore, for India to flourish, its farmers and the farm economy must prosper. It is against this background that the Prime Minister has called for doubling farmers’ incomes by 2022. To achieve this goal, the Action Agenda outlines a strong programme for agricultural transformation. It includes numerous measures to raise farm productivity, bring remunerative prices to farmers, put farmers’ land to productive uses when they are not able to farm it themselves and improve the implementation of relief measures.

The reform of the Agricultural Produce Marketing Committees (APMC) Act needs a new lease of life. Farmers should get genuine rights for direct sales to buyers of all commodities, potential buyers should get the rights to buy produce directly from farmers, entry of private agricultural markets should be free and an effective legal framework for contract farming should be established. Minimum Support Prices (MSPs) have distorted cropping patterns due to their use in certain commodities in selected regions.

There has been an excessive focus on the procurement of wheat, rice and sugarcane at the expense of other crops such as pulses, oilseed and coarse grains. These distortions have led to the depletion of water resources, soil degradation and deterioration in water quality in the North-west. At the same time, eastern states, where procurement at the MSP is minimal or non-existent, have suffered. One measure that can help reduce distortions in the MSP system is the system of “Price Deficiency Payment.” While MSP may still be used for need-based procurement, under the deficiency payments system, a subsidy may be provided to farmers on other targeted produce, contingent on prices falling below an MSP-linked threshold.

Over the years, landholdings in India have become smaller and fragmented. According to the 2010-11 Agricultural Census, 47% of landholdings had become less than half a hectare in size. These holdings are too small to support a family of five so that many farmers now seek alternative sources of income.

But stringent tenancy laws in most states have meant that these farmers hesitate to lease the land they leave behind. As a result, an increasing amount of farmland is being left fallow. The introduction of a modern land-leasing law that balances and protects the rights of the tenant and landowners would be a potential solution.

Finally, to alleviate distress in case of natural calamities, the government has recently introduced the Fasal Bima Yojana. This is an important positive step toward mitigating risk but requires improvement. Capping the subsidy amount per farm household to a fixed amount and charging the full premium for additional insurance would not only economize on financial resources but will also be more equitable.Trade, Industry and Services: Creating Well-Paid Jobs.

Contrary to some assertions that India’s growth has been “jobless,” the Employment Unemployment Surveys (EUS) of the National Sample Survey Office (NSSO), which till date remain the most reliable sources of information on India’s employment situation, have consistently reported low and stable rates of unemployment over more than three decades. Even under the most demanding definition of employment, the unemployment rate consistently remains between 5% and 8%.

Indeed, unemployment is the lesser of India’s problems. The more serious problem, instead, is severe underemployment. A job that one worker can perform is often performed by two or more workers. In effect, those in the workforce are employed, but they are overwhelmingly stuck in low-productivity, low-wage jobs.

Three examples illustrate the point. First, in 2011-12, as per the NSSO Employment Unemployment Survey, 49% of the workforce was employed in agriculture. But agriculture contributed only 17% of India’s GDP at current prices.

Second, in 2010-11, firms with less than 20 workers employed 72% of India’s manufacturing workforce but contributed only 12% of manufacturing output.

Finally, services are no different. According to the 2006-07 NSSO survey of service firms, the 650 largest enterprises accounted for 38% of services output but only employed 2% of services workers.

Put another way, the remaining services firms employed 98% of the workforce but produced only 62% of the output.

Therefore, what is needed is the creation of high-productivity, high-wage jobs. Accordingly, Chapter 6 of the Action Agenda focuses on the measures necessary for the increased emergence of larger, organized-sector firms. The “Make in India” campaign needs to succeed by manufacturing for global markets.

A focus on the domestic market through an import-substitution strategy, however attractive it may seem, would give rise to a group of relatively small firms behind a high wall of protection. They will not only fail to exploit scale economies but also miss out on productivity gains that come from competing against the best in the world. The electronics industry offers a case in point.

Our policy of import substitution under high protection has given rise to a group of small firms none of which is competitive in the world markets. In contrast, a focus on the global market can potentially result in output worth hundreds of billions of dollars and hence a large number of well-paid jobs. Today, with Chinese wages rising wages due to an ageing workforce, many large-scale firms in labour-intensive sectors currently manufacturing in that country are looking for lower-wage locations. With its large workforce and competitive wages, India would be a natural home for these firms. Therefore, the time for adopting a manufactures- and exports-based strategy could not be more opportune.

Keeping this context in view, the Action Agenda offers detailed proposals for the implementation of an exports-based strategy. Among other things, it recommends the creation of a handful of Coastal Employment Zones, which may attract multinational firms in labour-intensive sectors from China to India.

The presence of these firms will give rise to an ecosystem in which local small and medium firms will also be induced to become highly productive thereby multiplying the number of well-paid jobs.

India has the advantage of walking on two legs: manufactures and services.

The Action Agenda offers specific proposals for jumpstarting some of the key manufacturing and services sectors, including apparel, electronics, gems and jewellery, financial services, tourism and cultural industries and real estate.

Accordingly, the Action Agenda spells out how we can facilitate urbanization in the country. Key challenges faced by the urban sector include affordable housing, infrastructure development, public transport, promotion of Swachh Bharat, reform of urban land markets and waste management.

A large part of India’s population resides in rural areas. The challenges in the rural areas include creating jobs such that some agricultural workers could shift to non-farm sectors, skill development, accessing education and health facilities, infrastructure, local governance, drinking water and sanitation and financial inclusion. The Action Agenda outlines possible avenues to achieve progress in these areas.

Part IV: Growth Enablers

Part IV discusses how to enhance the contribution of a number of growth enablers. These include infrastructure, digital connectivity, Public Private Partnerships (PPPs), energy, science and technology and creation of an effective innovation ecosystem.

Infrastructure development is one of the most crucial elements of economic transformation. The development of transport and connectivity infrastructure, including the roadways, railways, shipping & ports, in-land waterways and civil aviation. The challenges faced in this sector include physical capacity constraints, severe modal imbalances and a lack of holistic planning, maintenance and safety.

Digital connectivity has become an important driver of economic growth. In order to leverage efficiencies promised by the adoption of digital technologies, we need to develop a physical digital infrastructure network that is accessible to all. We must also create a host of software drive services including government services that can be provided digitally. The Action Agenda discusses the Digital India campaign and the actions related to enhancing digital connectivity.

Private sector involvement in infrastructure projects across different sectors helps in bridging the gap between the available public resources and the required investment. In addition, it helps in bringing private sector expertise into play. However, the institutional framework governing Public Private Partnerships (PPP) needs to be strengthened so that bottlenecks to implementation are avoided.

Another important element in India’s development strategy is spurring science and technology including creating an enabling environment for innovation and entrepreneurship. With economic growth, India’s contribution to science and technology has gained some momentum but it still lags behind the other major economies in the world. A culture of innovation is also essential for India to find ways to tackle its development challenges such as access to education, improving agricultural productivity and wastewater management.

Part V considers issues related to the government such as governance, taxation, competition and regulation. It also recommends reforms in the civil service, and electoral process. It suggests actions to eliminate corruption and black money, which have emerged as important policy priorities. Finally, the chapter offers suggestions for strengthening federalism and bringing states to the forefront of reform agenda. Reforms to taxation policy and its administration with the view of reducing the scope for tax evasion and generation of black money, expansion of the tax base, and creation of a predictable and stable tax policy.

The government influences market outcomes through a regulatory environment that consists of laws, policies and rules. As elsewhere, India’s regulatory environment has features that do not facilitate competition and may harm the public interest. Public procurement policies also need improvement. Justice System needs reform - statutory and administrative laws, the judicial system and police. The suggestions on statutory and administrative law reform focus on modernizing and weeding out old and dysfunctional elements in legislation, unifying and harmonizing laws, reducing government intervention in areas where it is not required, undertaking statutory reforms in criminal justice and procedural laws, and reforming land/property related laws.

The suggestions for reforming the judicial system revolve around streamlining human resource availability and performance, increasing and strengthening avenues for dispute resolution and extensive use of ICT to improve efficiency. For police reform, the important areas are state level legislative and executive reforms to help police forces serve more effectively within the modern-day democratic state.

Part VI: Social Sectors

Part VI of the Action Agenda turns to education, skill development, health and issues facing specific groups such as Scheduled Castes, Scheduled Tribes, women, children, differently abled and senior citizens. Education, skill development and health contribute to the creation of a productive workforce. Addressing the needs of all members of society is critical for inclusive growth of the country.

Given that a large and growing segment of India’s population is under 25, education and skill development are critical to fully harvesting India’s demographic dividend. The goals of improving learning outcomes in schools, raising the quality of education and research in higher education and promoting skill development are priorities for the sector.

At the school level, while we have successfully brought all children into the fold of elementary education, quality education remains a distant dream. Actions to improve education quality can no longer be delayed. The chapter provides various steps to improve outcomes in the areas of school as well as higher education.

In the next fifteen years, we must entirely transform the delivery of health services and engineer a quantum jump in health outcomes. Action Plan focuses on public and preventive health, assurance of health care, reforming fiscal transfers from the Centre to states for better health outcomes, accelerating human resource development and improving access to medicines.

The last part of the Action Agenda, Part VII, turns to environmental sustainability. We must address the high levels of air pollution in the cities, black carbon pollution indoors from the use of biomass fuels in cooking, massive volumes of solid waste in urban areas and deforestation. On the one hand, we must strengthen and streamline regulatory structures governing sustainability of the environment while on the other we must remove hurdles that adversely impact growth without protecting the environment.

Finally, water demand for irrigation, drinking and industrial use has been increasing with growth in incomes and population. But the sources of water supply remain scarce. We must address issues such as water scarcity, uneven distribution of water resources across people, sectors and regions, deteriorating water quality and excessive dependence on groundwater.

Only by working together towards common national goals can the Centre and states meet India’s development challenges. “Maximum Governance and Minimum Government”, and “Competitive and Cooperative Federalism” are critical to achieving the full potential and creating a modern India, which brings prosperity to all of its 125 Crore citizens.

The three year action agenda chalks out a comprehensive plan for the reforms in every sector in order to achieve a high growth trajectory to become a developed country as soon as possible. These suggestions are in line with the Finance Commission Period and hence more pragmatic fund division methodology can be saught in its final recommendations.

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